“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


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Wednesday, August 22, 2012

Gold Needs a Strong Close to End this Week

The following weekly chart provides a bit of longer term perspective as it shows the very solid level of buying support that has marked an accumulation phase by some very large players down below the $1585 - $1565 level. That buying has forged a bottom in this market while it slowly gathered steam for an upside breakout that forced the hands of the speculative shorts and enticed momentum based money flows back onto the long side of the market.

There are two main points to bring away from this chart. The first is that gold has managed to clear a downsloping trend line going back to the its all time peak (in non-inflation adjusted terms). It will tremendously aid the bullish cause should this market close above that line and especially above the $1665 level to end this week.


The second is to note how the market has been recently marching higher along the bottom tine of the pitchfork managing to close each week ABOVE this line since its spring low. This series of higher lows is indicative of a market that is seeing DEMAND arise at a progressively higher price level. That in itself is friendly.

If this market can clear psychological round number resistance at $1700, I expect it to make a fairly rapid run to the $1788 - $1800 level. The reason? Because the move will be starting from a relatively low level of speculative players on the long side in this market.

Remember Open interest has bled out of this market to the extent of over 400K contracts since its peak last year in August. That is an astonishing washout in a year's time! Speculators took their money and headed elsewhere looking for gains. If this market looks as if it is going to begin another trending move to the upside, those funds that were leaving in droves, will be returning in droves to try to capture the move higher and capitalize.

Look at the following chart of the OUTRIGHT LONG positions (Not NET LONGS) of the big managed money/hedge fund community in gold. Since peaking close to 260K contracts near the all time high in gold last year, it has dropped over 50% to the present time. As stated many times over the past few months - the hedge fund community lost interest in gold as it was not trending. They went elsewhere looking for opportunities and found them to a great extent in the grains.




However, this camp LOVES trending markets with lots of momentum, which is why gold will move sharply higher if the algorithms remain solidly on the buy side. That will see the following chart detail a rather abrupt turn higher with the line rising instead of falling. So much of course depends on the actions of the Central Banks but the markets seem to be more and more convinced that the next "PROBLEM" it is going to have to deal with is becoming one of inflation and rising prices rather than deflation and falling prices, thanks mainly to the accomodative monetary policies that many are now expecting to be forthcoming from all corners of the globe.



3 comments:

  1. Thank yuo Dan. It is amazing how just one month ago the problem/worry was deflation. How quickly things change.

    ReplyDelete
  2. Norcini is the man!!
    Mr. Norcini what's your opinion on silver?, what should be a trend change for silver?, a closing over what?, week, month....thank you Dan, any insight is really appreciate.

    ReplyDelete
  3. Hi Dan, so great to get such great un-biased analysis,
    I was wondering The close is always important, but which close....the Comex? or maybe the close of electronic trading at 5:15?? which is the most important close??

    ReplyDelete

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